Let Gregory James Company, Inc. help you figure out if you can cancel your PMI
It's widely known that a 20% down payment is the standard when purchasing a home. The lender's liability is usually only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and typical value changes on the chance that a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to manage the additional risk of the minimal down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they secure the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, wise homeowners can get off the hook a little earlier.
Considering it can take countless years to arrive at the point where the principal is just 20% of the original amount of the loan, it's necessary to know how your home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things settled down.
The toughest thing for most homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to understand the market dynamics of their area. At Gregory James Company, Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Cedartown, Polk County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little trouble. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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